TIDMCVSG
RNS Number : 1882N
CVS Group plc
21 September 2023
For Immediate Release
21 September 2023
CVS GROUP plc
("CVS", the "Company" or the "Group")
Final results for the year ended 30 June 2023
Strong results reflect continued customer demand for
high-quality clinical care and investment in growth
CVS, the UK listed veterinary group and a leading provider of
veterinary services, is pleased to announce its final results for
the year ended 30 June 2023 ("2023").
Financial Highlights
Change
GBPm except where stated 2023 2022 %
----------------------------------- ------ ------ ----------
Revenue 608.3 554.2 9.8%
Group like-for-like ("LFL") sales
growth (%)(1) 7.3% 8.0% -0.7 ppts
Adjusted EBITDA (2) 121.4 107.4 13.0%
Adjusted EBITDA(2) margin (%) 20.0% 19.4% +0.6 ppts
Adjusted profit before tax (3) 85.4 75.5 13.1%
Adjusted earnings per share (4)
(p) 96.0 85.8 11.9%
Operating profit 62.3 42.8 45.6%
Profit before tax 53.9 36.0 49.7%
Basic earnings per share (p) 58.8 36.2 62.4%
Net bank borrowings(5) 74.0 36.0 105.6%
Final dividend (p) 7.5 7.0 7.1%
----------------------------------- ------ ------ ----------
-- Revenue increased by 9.8%, to GBP608.3m (2022: GBP554.2m),
with Group like-for-like(1) sales growth of 7.3% in line with the
Group's stated organic revenue growth target of between 4% and 8%,
reflecting continued demand for the Group's high-quality clinical
care
-- Adjusted EBITDA(2) growth of 13.0%, to GBP121.4m (2022:
GBP107.4m), underpinned by strong revenue performance and the
continued investment in our facilities, equipment, technology and
colleagues in addition to the recognition of research and
development expenditure tax credit
-- Profit before tax increased by 49.7%, to GBP53.9m (2022:
GBP36.0m) benefitting from the increase in adjusted EBITDA
partially offset by an increase in finance expense, depreciation
and costs relating to business combinations. The prior year was
impacted by the one-off impairment of investment relating to the
acquisition of Quality Pet Care Ltd
-- Leverage(6) increased to 0.73x (2022: 0.40x) as a result of
the above investment and acquisitions
-- Operating cash conversion improved 4.9ppts to 70.0%
-- In light of the continued growth of the Group and its
positive operating cash generation, the Board is recommending the
payment of a final dividend of 7.5p per Ordinary share (2022:
7.0p)
-- In February 2023, we successfully refinanced our debt
facilities increasing available funds to GBP350m from GBP170m. The
interest margin and covenants for the facility remain unchanged
Notes
1 Like-for-like sales shows revenue generated from like-for-like
operations compared to the prior year, adjusted for the number of
working days. For example, for a practice acquired in September
2021, revenue is included from September 2022 in the like-for-like
calculations.
2 Adjusted EBITDA (Earnings Before Interest, Tax, Depreciation
and Amortisation) is profit before tax adjusted for interest (net
finance expense), depreciation, amortisation, costs relating to
business combinations, and exceptional items. Adjusted EBITDA
provides information on the Group's underlying performance and this
measure is aligned to our strategy and KPIs.
3 Adjusted profit before tax is calculated as profit before
amortisation, taxation, costs relating to business combinations,
and exceptional items.
4 Adjusted earnings per share is calculated as adjusted profit
before tax less applicable taxation divided by the weighted average
number of Ordinary shares in issue in the year.
5 Net bank borrowings is drawn bank debt less cash and cash
equivalents
6 Leverage on a bank test basis is net bank borrowings, divided
by adjusted EBITDA annualised for the effect of acquisitions,
including costs relating to business combinations and excluding
share option costs, prior to the adoption of IFRS 16.
Significant operational and strategic progress
-- 6.5% increase in the average number of vets employed in the
year against a continued backdrop of constrained availability of
vets across the industry
-- We have continued to increase investment in our people,
facilities and equipment, investing GBP45.7m in 2023 (2022:
GBP24.5m), including completing 21 refurbishment and relocation
projects in the year (2022: 23) in accordance with our plans
outlined at our capital markets day in 2022
-- We have published our second standalone Sustainability
Report, describing the goals and activities of our ESG working
groups and introduced targets across our work groups
-- We have invested GBP54.6m in 11 acquisitions comprising 16
practice sites in line with our inorganic growth strategy
-- Our client Net Promoter Score (NPS) increased to 73.0 (2022:
71.9) reflecting our continued focus on delivering high-quality
clinical care
-- Our employee NPS increased to 14.6 (2022: 4.8) reflecting our
focus in supporting and developing our colleagues
Competition and Markets Authority (CMA)
On 7 September 2023, the CMA announced a Market Review of the
Veterinary sector for household pets in the UK. The review is
carried out under the CMA's general review function which allows it
to obtain, compile and keep under review information relating to
the CMA's functions. The Market Review is voluntary and we will
work closely with the CMA in support. The CMA have stated they will
provide a further update in early 2024.
Current trading in line with expectations
-- The new financial year has started well, we are pleased with
the momentum in the business and continue to trade in line with
market expectations
-- Continued growth in our Healthy Pet Club to 494,000 members
(+4% compared to 31 August 2022); representing roughly 40% of the
companion animal active client base.
-- Following our announcement in July 2023 of our entry into the
Australian veterinary services market, we have now completed total
acquisitions of five first-opinion small animal practices
(comprising five sites) for initial consideration of GBP23.8m and
exchanged contracts of a further two comprising of four practice
sites
-- We have acquired a further two Veterinary practices in the
UK, following submission of briefing papers to the Competition and
Markets Authority (CMA), for consideration of GBP6.6m
-- We have a strong pipeline of additional acquisition
opportunities in both the UK and Australia
-- Whilst we are mindful of the wider macroeconomic backdrop and
inflationary pressures, the Group remains well positioned to
continue delivering attractive growth and shareholder value
-- We are on track to continue to deliver against the KPIs set
out at the Capital Markets Day in November 2022
Richard Fairman, Chief Executive Officer, commented:
"I'm pleased that we have delivered another strong set of
results, with good growth against all of our six strategic targets
announced at our Capital Markets Day in November 2022. Our
continued focus on providing the best possible care to animals, led
by our passionate and caring colleagues who are committed to
high-quality veterinary care, has contributed to the strength of
our performance.
"I am delighted to announce we have now completed five
acquisitions in Australia (comprising five sites) and a further two
acquisitions in the UK (comprising two sites). We are excited by
the opportunity Australia presents and delighted to welcome the
teams from these Australian and UK practices into the Group.
"CVS remains committed to providing high-quality care to our
clients and their animals. With the continued support of our
outstanding colleagues and our planned investment in people,
practice facilities and technology, I look forward to sharing
further successes in 2024 and beyond."
Results webcast
Management will host a live webcast and Q&A for analysts at
9am GMT this morning. Those wishing to join should email
CVSG@camarco.co.uk for access. For those unable to join, there will
be a playback facility available on the CVS website later.
Contacts
CVS Group plc via Camarco
Richard Fairman, CEO
Ben Jacklin, Deputy CEO
Robin Alfonso, CFO
Peel Hunt LLP (Nominated Adviser & Broker) +44 (0)20 7418
8900
Adrian Trimmings / Michael Burke / Andrew Clark / Lalit Bose
Berenberg (Joint Broker) +44 (0)20 3207 7800
Toby Flaux / Ben Wright / James Thompson / Milo Bonser
Camarco (Financial PR)
Geoffrey Pelham-Lane +44 (0)7733 124 226
Ginny Pulbrook +44 (0)7961 315 138
About CVS Group plc ( www.cvsukltd.co.uk )
CVS Group is an AIM-listed provider of veterinary services in
the UK, Australia, the Netherlands and the Republic of Ireland. CVS
is focused on providing high quality clinical services to its
clients and their animals, with outstanding and dedicated clinical
teams and support colleagues at the core of its strategy.
The Group has c.500 veterinary practices across its four
markets, including nine specialist referral hospitals and 39
dedicated out-of-hours sites. Alongside the core Veterinary
Practices division, CVS operates Laboratories (providing diagnostic
services to CVS and third-parties), Crematoria (providing pet
cremation and clinical waste disposal for CVS and third-party
practices), Buying Groups and the Group's online retail business
("Animed Direct").
The Group employs c.8,800 personnel, including c.2,300
veterinary surgeons and c.3,300 nurses.
Chair's statement
Building on our strong foundations to deliver continued
high-quality clinical care and investment in growth
Introduction
I am delighted to report on another successful year in which we
have increased investment in future growth, as well as announcing
our entry into the Australian veterinary services market post the
year end.
We have previously set out our clear strategy for growth
underpinned by our purpose to give the best possible care to
animals and our vision to be the veterinary company people most
want to work for. In November 2022, we outlined our updated
five-year plan in support of this strategy with continued focus on
organic growth and through investment in people, practice
facilities, clinical equipment and technology and further
acquisitions in the UK and overseas.
Whilst we are in the early stages of this five-year plan, we
have made a positive start with increased investment and eleven
practice acquisitions completed in the financial year.
I would like to take this opportunity to thank all CVS
colleagues for their continued professionalism and commitment in
providing great care for our clients and their animals.
Improved financial performance
We have delivered another strong set of financial results with
increased revenue and earnings, strong operating cash conversion
and improved balance sheet strength. This positions CVS well to
deliver investment in future growth.
Revenue for the financial year increased by 9.8% to GBP608.3m
(2022: GBP554.2m) reflecting our continued focus on providing the
best possible clinical care to animals. We continue to see robust
client demand for our high- quality services with long term drivers
of a growing pet population, improvements in animal healthcare and
the humanisation of pets.
Adjusted EBITDA increased by 13.0% to GBP121.4m (2022:
GBP107.4m) through revenue growth, our continued discipline in
managing costs and recognition of net Research and Development
Expenditure Tax Credit of GBP9.6m. Profit before tax increased by
49.7% to GBP53.9m (2022: GBP36.0m) with adjusted EPS increasing by
11.9% to 96.0p (2022: 85.8p) and basic EPS increasing by 62.4% to
58.8p (2022: 36.2p).
CVS continues to be highly cash generative with the improved
revenue and earnings resulting in cash generated from operations
increasing by 15.9% to GBP107.9m (2022: GBP93.1m). In accordance
with our strategy, we have increased our investment in our people,
our facilities and our equipment to further aid growth and, as a
result, net debt increased to GBP70.7m (2022: GBP35.3m) and
leverage increased to 0.73x, from 0.40x.
We successfully refinanced our bank debt facilities in February
2023, with GBP350.0m of total facilities now available comprising a
term loan of GBP87.5m and a GBP262.5m revolving credit facility.
The margin under these facilities remained unchanged. Financial
covenants also remained unchanged with considerable headroom at 30
June 2023 under both financial covenants. We also have access to a
GBP5.0m overdraft, renewable annually.
Strategic progress
Our strategy, purpose and vision are underpinned by our four
strategic pillars: to recommend and provide the best clinical care
every time; to be a great place to work and have a career; to
provide great facilities and equipment; and to take our
responsibilities seriously.
As outlined at our Capital Markets Day in November 2022, we have
increased investment in practice facilities, clinical equipment and
technology to drive growth with capital expenditure of GBP45.7m in
the financial year (2022: GBP24.5m). We completed 21 property
relocation and refurbishment projects in the year.
We acquired 11 veterinary practices (comprising 16 practice
sites) in the year for initial cash consideration of GBP54.6m.
In July 2023 we announced our entry into the Australian
veterinary services market with our first acquisitions of
veterinary practices. Having explored a number of new potential
markets we identified Australia as a particularly attractive market
given the relatively low levels of corporate consolidation,
favourable market dynamics and strong similarities with the UK,
including highly trained veterinary surgeons, shared language and
culture, and the Group's experience with UK vets working between
Australia and the UK.
At the heart of our growth ambitions is our vision to be the
veterinary company people most want to work for. We have taken
further positive steps in the year to provide additional support to
our colleagues with a number of new and enhanced employee benefits
introduced. These include a health care cash plan enabling
colleagues to cover the cost of a range of medical services and
support available to colleagues across a variety of health-related
life events, including fertility, pregnancy loss, major surgery and
hospitalisation.
CVS introduced a new Equity, Diversity and Inclusion (EDI)
strategy in 2022 and we have developed this in the past financial
year. New policies have been introduced covering bullying,
harassment and incivility and we introduced an EDI training course
for all CVS colleagues. We have also introduced a regular survey
question measure of whether our colleagues feel equally included at
work, and in June 2023 83.6% of colleagues responded positively.
Nearly 625 learners have enrolled in our Equity, Diversity and
Inclusion training course which raises awareness of bias and
prejudice in the workplace and recommends actions to consciously
improve.
Governance and the Board
We remain committed to the highest levels of corporate
governance and, as an AIM-listed group, we voluntarily adopt the UK
Corporate Governance Code 2018.
We continue to review the composition of the Board in order to
ensure that we have the right balance of skills and experience.
Joanne Shaw was appointed as a new Non-Executive Director with
effect from 1 July 2023. Joanne brings a wealth of healthcare
experience from her current roles as Trustee and Audit Committee
Chair at Cancer Research UK and Chair at the Royal College of
Paediatrics and Child Health, in addition to her previous roles as
Non-Executive Director at NHS England, Chair of NHS Direct,
Non-Executive Director at Kensington and Chelsea Primary Care Trust
and Chair of the British Equestrian Association.
Ben Jacklin was promoted to a newly created role of Deputy Chief
Executive Officer on 1 July 2023 reflecting Ben's significant
contribution over the past few years in his Chief Operating Officer
role. Ben retains responsibility for overseeing the Group's
operations in this new role.
Dividends
In light of the continued growth of the Group and its positive
operating cash generation, the Board is recommending a continuation
of our progressive dividend policy, with the payment of a final
dividend of 7.5p per Ordinary share (2022: 7.0p). The ex-dividend
date is 2 November 2023 and the dividend payment date is 8 December
2023.
Shareholder engagement
The Board continues to engage actively with existing and
potential new shareholders. Our Capital Markets Day in November
2022 was well attended in person and through a live stream of the
event. We outlined our growth ambitions over the next five years
and investors and analysts attending in person had the opportunity
to tour two of our veterinary practices and experience practical
demonstrations.
The Executive Directors attended a number of investor
conferences in the UK, the US and Europe during the financial year
and all Directors make themselves available to meet with investors
on request.
We continue to host a sell-side analysts and institutional
investors' webcast at our interim and full-year results, including
a question and answer session, with a replay facility provided on
our investor website.
Outlook
The financial performance achieved in the past financial year,
and our clear strategy for future growth, positions CVS well to
benefit from the sizeable and growing veterinary services market
and continued humanisation of pets.
I look forward to reporting on further success in the
future.
Richard Connell
Chair
21 September 2023
Chief Executive Officer's review
Continuing our focus of providing the best possible care to our
clients and their animals
Introduction
As a business whose purpose is to provide the best possible care
to animals, the passion and care of our colleagues are at the heart
of our success. I would like to begin by thanking each and every
one of our colleagues for their hard work and support over the past
year in delivering great care to our clients and their animals.
In November 2022, we hosted a Capital Markets Day which included
tours of two of our small animal veterinary practices. At this
event, we announced our five year plan and the six strategic
targets underpinning this plan:
-- organic revenue growth of 4%-8% per annum;
-- adjusted EBITDA1 margins of between 19% and 23% through investment in our facilities;
-- investment in practice facilities, clinical equipment and
technology to deliver additional organic growth;
-- acquisitions subject to disciplined criteria for returns and earnings accretion;
-- operating cash conversion of more than 70%; and
-- leverage on a bank test basis remaining below 2.0x.
A clear capital allocation strategy
We have a clear strategic focus to provide high-quality clinical
care to animals, and key to the delivery of this is investment in
our existing practice facilities, clinical equipment and
technology, and expanding our Group through strategically aligned
acquisitions subject to disciplined criteria.
In support of this planned increase in investment, we
successfully refinanced our debt facilities in February 2023,
increasing the available funds to GBP350.0m, comprising:
-- a GBP87.5m term loan, repayable via bullet payment in February 2027; and
-- a GBP262.5m revolving credit facility
The interest margin and covenants for the facility remain
unchanged, with maximum leverage of 3.25x and interest cover no
less than 4.5x. We obtained commercial terms with increased
flexibility to support our growth ambitions, and welcomed Barclays,
JP Morgan, Lloyds Bank, Virgin Money and Danske Bank to our banking
syndicate, alongside long-term partners HSBC, NatWest and AIB.
In the financial year to June 2023, we invested GBP45.7m and
completed 21 practice refurbishments and relocation projects. We
are pleased with the returns to date from this investment, with
higher-quality facilities and enhanced technology allowing us to
provide high-quality care to our clients and their animals.
This investment included a brand new greenfield site, Southport
Vets, which opened in December 2022. This 3,000 sq ft building
comprises four consulting rooms together with an operating theatre
and specialist dental suite, plus an in-house laboratory and
digital x-ray facilities.
Alongside this investment, we invested initial cash
consideration of GBP54.6m in acquiring 11 practices (16 practice
sites) in the financial year, and it has been a pleasure to welcome
our new colleagues to CVS.
Financial performance
In terms of financial performance during the full year ended 30
June 2023 we have delivered:
-- continued organic revenue growth with a 7.3% increase in
like-for-like sales (2022: 8.0%), consistent with the Group's
organic revenue growth ambition of between 4% and 8%.
-- adjusted EBITDA margin expansion of 60bps to 20.0%, within
our stated ambition of margins between 19% and 23%.
-- continued investment in our facilities and equipment to
support growth, with total capital expenditure of GBP45.7m (2022:
GBP24.5m), within the Group's capital expenditure ambition of
GBP30m to GBP50m investment per annum.
-- investment of GBP54.6m in 11 practice acquisitions
(comprising 16 practice sites) (2022: GBP8.4m in three practice
acquisitions (comprising four practice sites)), in line with the
guidance of GBP50m+ investment per annum; and .
-- operating cash conversion of 70%, broadly in line with our
stated ambition of 70%. In light of the increased investment made
in the financial year, leverage increased to 0.73x at 30 June 2023
(30 June 2022: 0.40x), but remained well below our stated target of
less than 2.0x leverage as set out in our Capital Markets Day
ambitions.
Strategy
Our purpose is to give the best possible care to animals and our
vision is to be the veterinary company people most want to work for
and these are underpinned by our four clear strategic pillars: to
recommend and provide the best clinical care every time; to be a
great place to work and have a career; to provide great facilities
and equipment; and to take our responsibilities seriously.
In order to recommend and provide the best clinical care every
time we continue to invest in research and development towards
improved clinical standards. In 2022 we launched our Clinical
Research Awards and to date we are supporting 16 research projects,
with more funds to be made available in the coming year. These
awards facilitate colleagues to be able to undertake high-quality
and impactful research, as well as work collaboratively with
universities and research institutions to continue to break new
ground in veterinary care.
Our vision to be the veterinary company people most want to work
for is underpinned by our strategic pillar to be a great place to
work and have a career. During the year, we launched a range of new
benefits and policies. Among these is a zero-tolerance policy
towards abusive clients to put colleague safety in practices at the
forefront and this can result in veterinary services being
terminated for abusive clients. The BVA published data in 2021
which showed six out of ten vets had reported feeling intimidated
by clients' language or behaviour in the previous year. We hope
this policy helps our colleagues in handling difficult situations
with the confidence that the Group is in support of their
welfare.
We have increased investment in our practice facilities,
equipment and technology in the past year so that we can achieve a
minimum practice facility standard. This standard includes optimal
layout of clinical spaces, increasing the number of consult rooms
and operating theatres, installing improved technology such as
dental x-ray and advanced imaging facilities, and improving
colleague areas such as kitchens and office spaces.
As a veterinary business, taking our responsibilities seriously
is in our DNA. We work closely with industry bodies to ensure we
are improving standards of care and we fully embrace the RCVS
Practice Standards Scheme (PSS). In June 2023, the RCVS added a
Sustainability Award to its PSS whose requirements range from
having a written environmental sustainability policy, to
demonstration of techniques to minimise anaesthetic gas usage and
annual waste surveys being undertaken with demonstrable action as a
result. We are encouraging our practices to participate in this new
award.
Focus on our people
To enable us to provide great care we have invested in employing
an additional 6.5% vets and 8.4% nurses on average in the financial
year to 30 June 2023 in comparison to the previous financial year.
We continue to increase the number of clinical colleagues we employ
at a significantly faster rate than the growth of the population of
practicing vets in the UK.
We are pleased that the RCVS has seen a rise in the number of EU
vets registering to work in the UK for the first year post Brexit,
with a 30% increase in 2022. Meanwhile, the arrangements that allow
graduates from European Association of Establishments for
Veterinary Education (EAEVE)-accredited schools to be recognised by
the RCVS have been extended for another year.
Although these structural improvements are positive, our ability
to attract and retain colleagues is significantly enhanced by our
focus on our people and on being a great place to work and have a
career. We measure employee Net Promoter Score (eNPS) monthly, and
this score has increased consistently each year since we first
began to measure it. At June 2023 our eNPS was 14.6 (2022: 4.8)
with the increase a reflection of our efforts in improving the
satisfaction of our colleagues.
We continue to focus on the wellbeing of our colleagues with
over 300 first aiders for mental health trained, considerable
awareness built across CVS and regular initiatives to promote
positive wellbeing. 100 practice teams have utilised our new "What
matters to us?" framework, which helps colleagues feel empowered to
make local changes to improve their wellbeing. Some 400 managers
across CVS have undertaken a new course developed on supporting the
wellbeing of their teams.
Developing a culture where everybody can contribute
Our values are customer focus, commitment to excellence, success
through our people, and honesty and integrity. In our 2022 Annual
Report, we introduced our Group-wide culture survey, in which we
sought feedback from colleagues across the business on their
experiences of inclusion, support and fairness within CVS.
During 2023, we have developed actions in response to the
results of this survey, with our main focus being on developing an
Equity, Diversity and Inclusion programme that enables all our
colleagues to feel included and psychologically safe. We developed
a psychological safety course to give leaders practical knowledge
and skills for creating a psychologically safe team environment. By
the end of June 2023, 372 leaders had completed the course, with
positive feedback on its impact in the workplace.
Sustainability
We published our first Sustainability Report in 2022 and we have
concentrated our focus in the past year on six key areas, namely
Energy and Carbon, Waste, One Health, People Development, Wellbeing
and EDI.
During the year, we introduced our new network of Environment
Champions. These are volunteers from across the business supporting
us to reduce our impact on the environment, improve the way we deal
with our waste and cut our carbon footprint. Our aim is for each
practice or building to have an Environment Champion, forming a
network of CVS Group colleagues who volunteer to help raise energy
and environmental awareness.
Australia market entry
Since the year end, in July 2023 we announced our entry into the
Australian veterinary services market and we have now completed
five first-opinion small animal practices (comprising five sites)
with a strong pipeline of additional opportunities.
We identified Australia as an attractive market and I am
delighted to welcome our new colleagues in Australia to CVS.
Competition and Markets Authority (CMA)
On 7 September 2023, the CMA announced a Market Review of the
Veterinary sector for household pets in the UK. The review is
carried out under the CMA's general review function which allows it
to obtain, compile and keep under review information relating to
the CMA's functions. The Market Review is voluntary and we will
work closely with the CMA in support. The CMA have stated they will
provide a further update in early 2024.
Outlook
I am proud of the achievements of our team of colleagues over
the past year, as reflected in another set of strong financial
results.
We set out a clear five-year plan at our Capital Markets Day in
November 2022 and the achievements in the past year, the
refinancing of our bank facilities and balance sheet all position
us well to deliver against this ambition. Whilst we continue to be
mindful of inflationary pressures on household incomes, we are
confident that our strategy for growth focused on high-quality
clinical care and investment in facilities and technology positions
us well to deliver further growth over the coming years.
With the continued support of our outstanding colleagues, I look
forward to sharing further success in 2024 and beyond.
Richard Fairman
Chief Executive Officer
21 September 2023
Operational review
Continuing to attract great talent to deliver the best possible
care for our patients and their owners
I am once again proud to present a review of our operations, on
behalf of all our dedicated colleagues across each of our
divisions. In an inflationary environment which has been
challenging for consumers and businesses across many other
industries, we have seen another successful year characterised by
investment in our core businesses. These investments further our
pursuit of the best possible care for our patients and working
environments that attract the very best veterinary talent. They are
a testament to the continued resilience of clients in the
veterinary sector and, particularly for CVS, their ongoing desire
to give their pets the very best care they can.
We launched our strategy back in 2019: a purpose to give the
best possible care to animals, which we will deliver through our
vision to be the veterinary company people most want to work for.
Underlying our purpose and vision are our four strategic
pillars:
-- we recommend and provide the best clinical care every time;
-- we are a great place to work and have a career;
-- we provide great facilities and equipment; and
-- we take our responsibilities seriously.
We continue to demonstrate that through delivery of this
strategy we achieve strong and sustainable growth.
Our clinical leadership teams continue to work with our
colleagues and practices delivering clinical development and
quality improvement. During the year we executed a number of
clinical improvement projects, developed by our clinical leadership
teams. In 105 of our first-opinion companion animal practices we
launched a project to increase screening for hypertension (high
blood pressure) in older cats. Up to 40% of cats over seven years
old will have hypertension, many of which are undiagnosed.
Undiagnosed hypertension can lead to serious disorders affecting
the brain, heart and kidneys, including weight loss, retinal
disease and renal failure amongst other serious complications.
However, early diagnosis can lead to significantly better outcomes
for each patient. This project led to 5,984 additional blood
pressure measurements to screen cats for hypertension, and 444 more
cats being diagnosed and treated in the participating sites. This
is just one example of the difference we can make to all
stakeholders with clinical projects such as these. First and
foremost we can improve outcomes for patients, while improving the
experience and outcome for clients and ultimately generating
revenues from the accurate diagnosis and treatment of clinical
cases.
Being a great place to work and have a career is our ambition
for all of our colleagues, not just vets. Our veterinary nurses
perform a vital role in practice and during the year we took time
to understand why nurses leave their roles and the sector, and what
factors predict those who will leave. The study used multivariable
logistic regression analysis to identify that higher quality
property facilities were predictive of nurses choosing not to
leave, underlining the importance and benefit of investment in our
facilities.
The data used for the study was from 2021, and since then we
have seen a continued reduction in attrition within our nursing
population and across the Company, probably in part due to the
investments we have made in facilities across CVS. During the year
we completed 21 major property projects, including 15 major
relocations, 5 refurbishments and a new greenfield site in
Southport. Alongside those facilities investments we have continued
to invest in developing career pathways and new employee benefits,
and improving wellbeing and engagement, all of which move us
towards our vision.
We have opened a second nurse training school, based in Norfolk,
which is in addition to our existing school at Chestergates. This
enables us to train more of our own student veterinary nurses and
help them to qualify as Registered Veterinary Nurses, as well as
offering training to some external students. Such career
development opportunities are critical to those colleagues aspiring
to become veterinary nurses, and being able to train nurses in
house is a significant benefit.
The research into nurse attrition was led by our Group Director
of Clinical Research, and recognised by publication in the "Vet
Record", a leading peer-reviewed scientific journal in the
profession.
Alongside the continued opportunities to invest in and grow our
organic business, we continue to see significant opportunity for
acquisitions in the UK and further afield. We continue to follow
the guidance issued by the Competition and Markets Authority and
have successfully completed 11 acquisitions of 16 practice sites in
the year. Continuing the discipline of acquisition applied over the
last few years these are high-quality practices that fit with our
provision of the best possible care, and I warmly welcome these new
colleagues to CVS.
Sustainability remains at the heart of what we do, and I am
pleased that we continue to focus on a wide variety of initiatives
that we feel are material to CVS and its stakeholders. Outlined in
our 2022 Quality Improvement report, published during the year, we
shared that our data driven approach reduced the use of Highest
Priority Critically Important Antibiotics (HCPIA) by 20% in twelve
months.
Veterinary Practices division
Supporting our colleagues to deliver the best possible clinical
care
Our Veterinary Practices division comprises our companion
animal, referrals, farm animal and equine veterinary practices, as
well as our buying groups, veterinary wholesaler "Vet Direct", and
MiPet Insurance.
The division has performed well during the financial year with
like-for-like sales growth of 7.3%, contributing to total revenue
growth of 10.1%. Adjusted EBITDA increased 7.2%. We made 11
acquisitions during the financial year, adding 16 practice sites to
the Group.
Since the year end, a further seven practice sites have been
acquired, including five in Australia following CVS's entry into
that market.
Companion Animal
Our Companion Animal division forms the majority of our
Veterinary Practices division. The focus of our Companion Animal
division on delivering the best possible care for our patients
continues, and benefits from a growing market as customers continue
to seek out veterinary care for their pets.
We have placed particular emphasis on research and development
to support the progression of the profession. A series of clinical
excellence projects has been launched to provide a greater range of
clinical services with each project designed to help practices
identify where they may be able to improve the standard of clinical
care.
We continue to focus on the recruitment, retention and
development of our highly skilled and dedicated colleagues. We
employed an average of 6.5% more vets in 2023 vs 2022 reflecting a
further reduction in attrition, a record graduate vet intake and
the ongoing recruitment of some of the best talent in the
profession.
Referrals
Our Referrals operations have continued to grow, benefiting from
the leadership of a new management team. We continue to support our
colleagues with their careers, supporting them through their
specialist exams. We have also integrated our advance clinical
services network into our Referrals division, to aid collaboration
across our teams.
Equine
Our Equine operations have seen good top-line revenue growth,
despite being the one area of our Veterinary Practices division
more susceptible to macroeconomic pressures. During the year we
have expanded our Equicall dedicated out-of-hours service, which
benefits both CVS and third-party practices. This not only provides
vital specialist out-of-hours care to our patients but removes the
need for onerous out-of-hours rotas in practices, providing a
better work-life balance for colleagues.
Due to the ambulatory nature of this division, we are trialling
a diary optimisation tool, to help efficiently meet our clients'
needs, and improve collaboration between our practice sites.
Farm
Our Farm operations consists of 14 farm animal practice
locations and a large specialist poultry veterinary business.
During the year we have introduced the procurement of drugs for all
of our Farm division through our Pharmsure practice, to deliver
best price and secure supply.
We have continued our investment in advanced breeding work, with
Castle Farm Vets expanding its advanced breeding programme. In
addition, we have introduced recruiting Approved Tuberculin Testers
to undertake tuberculosis testing across England, allowing vets to
focus on clinical work.
International
Our International division comprises 27 practices in the
Netherlands and three practices in the Republic of Ireland. These
include companion animal, equine and farm practices.
During the year we continued to focus on our people and their
careers. We have supported our colleagues through further training
with eight veterinary nurses from CVS Netherlands successfully
completing their training to become Supervisory Radiation
Protection colleagues, the first veterinary nurses in the
Netherlands with this qualification. In addition, we have focused
on attracting further clinical colleagues to ensure we can continue
to service client demand across our practices.
As we continue to review and ensure we are able to meet the high
standards of service and clinical care across our practices, during
the year we made the difficult decision to close our Gilabbey site
in Cork, Republic of Ireland. The existing facilities required
major investment and a protracted renovation to meet both our high
clinical standards and the very highest standards of health and
safety that we set ourselves. Accordingly the best course of action
was to close the site and in the interests of our patients and
clients, transition client services to neighbouring competitor
practices.
Since the year end, the Group has entered the Australian
veterinary services market. Having explored a number of new
potential markets, the Board has identified Australia as
particularly attractive given the relatively low levels of
corporate consolidation, favourable market dynamics and strong
similarities with the UK, including highly trained veterinary
surgeons, shared language and culture, and the Group's experience
with UK vets working between Australia and the UK. The practices
that have joined us are of the highest quality, and with a long
pipeline of accepted offers we expect to grow our Australian
business strongly over the coming years.
Healthy Pet Club
As well as offering first class care to sick or injured animals,
we continue to offer preventative healthcare through our Healthy
Pet Club scheme, which offers routine flea and worming treatments
and vaccinations, as well as twice yearly health checks. These
clients can spread the cost of accessing the best preventative
healthcare, allowing our clinicians to identify diseases and
recommend the best diagnostics and treatments. The scheme
membership has grown by 4.0% over the past year to around 489,000
members, representing roughly 40% of our companion animal active
client base.
MiPet products
We continue to enhance our own brand range, MiPet, with a
further four products planned to be added in the new financial
year. Our own-brand spend consistently makes up c.39% of the UK
practices' pharmaceutical spending in 2023 and 2022.
Vet Direct
We continue to see strong growth in Vet Direct, our equipment
and consumables business, both from CVS and third-party practices.
We introduced a dedicated marketing team to promote Vet Direct to
third-party customers.
Outlook
As we continue to focus on delivery of high-quality clinical
care alongside our people-focused strategy, we are optimistic that
our Veterinary Practices division will continue to deliver
year-on-year growth despite the economic uncertainties ahead. We
operate in a resilient market and are comforted that the results we
are publishing for 2023 demonstrate spend on high-quality
veterinary care continues to be a priority for pet owners.
Our colleagues have always been and remain our biggest asset and
I continue to admire the hard work and dedication across our
clinical teams. We have seen attrition fall to its lowest level
since we began recording it, and employee net promoter score peaked
at its highest level during the year, ending strongly at 14.6.
Since the financial year end, the announcement of our entry into
the Australia market represents more good news for CVS. As a
company dedicated to giving the best possible care to animals, we
see a fantastic opportunity for us to enter this growing market,
with low levels of corporate consolidation, and execute our vision
of being the veterinary company people most want to work for.
Having spent time in Australia over the last twelve months,
including meeting some fantastic veterinary practices, it is clear
we have a significant opportunity. We are excited to build a
significant CVS business in Australia with the same culture and
values that have brought us success in the UK.
Laboratories division
Supporting clinical care through in-house analysers and
nationwide coverage of diagnostic testing
Our Laboratories division provides diagnostic services and
in-practice desktop analysers to both CVS and third-party practices
and employs a national courier network to facilitate the collection
and timely processing of samples from practices across the UK. We
continue to develop our capability to ensure we can support the
wider Group focus on growing diagnostic care and introduced further
tests in the year.
Revenue has increased 7.7% compared to the prior year and
adjusted EBITDA increasing 10.8%, with strong case numbers
contributing towards the rise. We saw approximately a 3% increase
in case volume, with approximately 45% of diagnostic laboratory
tests performed for CVS practices.
Outlook
The Laboratories division has remained resilient despite
increasing consolidation in the veterinary sector. By increasing
the speed and range of testing we offer in our laboratories, along
with providing great client service, we are optimistic for growth
in the years to come.
Crematoria
Supporting clients to achieve a compassionate goodbye
Our Crematoria division provides both individual and communal
cremation services for companion animal and equine clients, as well
as clinical waste disposal services for both CVS and third-party
veterinary practices. The strong revenue and adjusted EBITDA growth
in the division was driven by the Direct Pet Cremation service we
introduced in 2021 and rolled out across all our sites during the
year. Putting customers directly in contact with crematoria to make
pet aftercare arrangements, and giving them more time to consider
their range of options, has resulted in significant changes to
customers' choices and generated improved customer care. We
relocated our Valley Pet Crematoria to a new site and incorporated
temperature and oxygen-controlled systems, which to date have only
been used in human cremators, to minimise our environmental impact
by delivering optimal combustion efficiency.
Outlook
The outlook for our Crematoria division remains strong, as
owners continue to value the opportunity to remember their beloved
pet and utilise the offering the Crematoria division provides in
the experience of losing their pet, through our range of more
premium offerings. Whilst Direct Pet Cremation has now been rolled
out to all our CVS clinics, there are opportunities to broaden our
premium range of services in due course.
Online Retail Business
A trusted provider of your pets' food and pharmacy needs
Our online pet food and pharmacy retailer, "Animed Direct",
focuses on supplying pet food and prescription and non-prescription
medication, directly to customers. This is supported by the buying
power of the Group as a whole, which ensures the business is able
to provide the best value for customers.
During the financial year, our Online Retail Business division
delivered revenue growth of 5.4% and adjusted EBITDA growth of
11.4% and an increase in visits to our website to 8.1m from 7.6m in
2022.
We have invested in two new pharmacy robots to bring
efficiencies in warehouse space, increasing dispatch productivity
along with improving quality control.
Outlook
During the year we continued the design and implementation of a
new website. We continue to work on this and expect the new site to
go live during 2024. Our improved website and warehouse systems
will enable us to increase capacity, delivering future growth in
online sales and improving customer satisfaction.
Central administration
Central administration costs include those of the central
finance, IT, human resources, purchasing, legal, Board and property
functions. Total costs were GBP11.9m (2022: GBP16.6m), representing
2.0% of revenue (2022: 3.0%). The decrease in central
administration costs primarily relates to increase Research and
development claims recognised centrally partially offset by
increased spend on support functions.
Ben Jacklin
Deputy Chief Executive Officer
21 September 2023
Financial review
Our continued opportunities for investment in growth underpin
our strategy
Financial highlights
As highlighted at our Capital Markets Day, we continue to focus
on our strategy to invest in the growth of our business with a
record investment of GBP45.7m in our facilities and equipment and
GBP54.6m invested in acquisitions in the UK during the year.
With operating cash conversion of 70.0%, leverage remained low
at 0.73x (2022: 0.40x).
We were also delighted to announce our entry into the Australian
veterinary services market in July 2023. Our expansion into the
Australian market is in line with our growth objectives outlined in
our five-year plan and since entering the market in July we have
successfully complet ed five ac quisitions.
The Group continues to deliver its strategy, which translates
and is supported by the financial highlights below.
Statutory financial highlights are shown below:
Change
2023 2022 %
-------------------- ----- ----- ------
Revenue (GBPm) 608.3 554.2 9.8%
Gross profit (GBPm) 262.3 239.1 9.7%
Operating profit
(GBPm) 62.3 42.8 45.6%
Profit before tax
(GBPm) 53.9 36.0 49.7%
Profit after tax
(GBPm) 41.9 25.7 63.0%
Basic earnings per
share (p) 58.8 36.2 62.4%
-------------------- ----- ----- ------
Adjusted financial highlights
2023 2022 Change
GBPm GBPm %
----------------------- ----- ----- ------
Adjusted EBITDA (GBPm) 121.4 107.4 13.0%
Adjusted profit before
tax (GBPm) 85.4 75.5 13.1%
Adjusted earnings
per share (p) 96.0 85.8 11.9%
----------------------- ----- ----- ------
Revenue
Total revenue increased 9.8% to GBP608.3m from GBP554.2m with
CVS continuing to deliver high-quality clinical invention for an
increasing pet population. There was good growth across each of our
four divisions notwithstanding a challenging economic climate and
cost of living crisis.
The Group continues to deliver against its strategy for
sustainable growth. There was strong like-for-like revenue growth
of 7.3% (2022: 8.0%), with the remaining revenue growth coming from
acquisitions.
Our preventative Healthy Pet Club scheme saw membership continue
to grow with membership at June 2023 of 489,000, a 4.0% increase
year on year (2022: 470,000) and we are pleased to be able to
highlight a 6.5% increase in the average number of vets employed in
2023 versus 2022.
We continue to invest in our practice facilities, clinical
equipment and technology with total capital expenditure of GBP45.7m
(2022: GBP24.5m). We are confident the investment creates an
opportunity for us to further increase organic growth and
like-for-like sales by facilitating better clinical care and
providing our colleagues with a better working environment, which
we believe will support attracting and retaining talent.
Gross profit/gross profit margin
Gross profit of GBP262.3m increased by 9.7% from GBP239.1m
benefiting from revenue growth with gross profit margin flat at
43.1%. During the year, there was an improvement in gross margin
before clinical staff costs to 77.7% from 76.9%; offset by an
increase in clinical staff costs as we continue to invest in
people. We continue to focus on ensuring we purchase drugs at the
best possible price whilst maintaining the highest quality to
enable us to focus on great clinical care.
Adjusted EBITDA and adjusted earnings per share
Adjusted EBITDA increased by 13.0% to GBP121.4m from GBP107.4m
benefiting from an increase in gross profit and includes GBP9.6m
(2022: GBP2.0m) of net Research and Development Expenditure Tax
Credits; offsetting utility inflation, investment in people and to
a lesser extent wage inflation.
Adjusted EBITDA margin increased to 20.0% from 19.4%, in line
with our ambition from the Capital Markets Day for organic
expansion of our margin from 19.0% to 23.0%.
Adjusted EPS (as defined in note 1 to the FY23 Annual Report)
increased 11.9%, to 96.0p from 85.8p. Adjusted EPS exclude the
impact of amortisation of intangible assets, costs relating to
business combinations and exceptional items.
Operating profit, profit before tax and basic earnings per
share
Operating profit increased by 45.6% to GBP62.3m from GBP42.8m
benefiting from the improvement in adjusted EBITDA and a reduction
in exceptional items.
Profit before tax increased by 49.7% to GBP53.9m from GBP36.0m.
Finance expense increased to GBP8.4m from GBP6.8m following an
increase in SONIA rates and increased bank borrowings to support
investment. Consequently, basic EPS increased 62.4%, to 58.8p from
36.2p.
A reconciliation between statutory operating profit and adjusted
EBITDA is shown below:
2023 2022
GBPm GBPm
---------------------------- ----- -----
Operating profit 62.3 42.8
Adjustments for:
Amortisation, depreciation,
impairment and profit
on disposal 50.2 47.3
Costs relating to business
combinations 6.6 4.9
Exceptional items* 2.3 12.4
---------------------------- ----- -----
Adjusted EBITDA 121.4 107.4
---------------------------- ----- -----
* Exceptional items relate to the closure of Gilabbey Veterinary
Hospital and include a trading loss for the year of GBP1.3m, loss
of disposal of patient data records of GBP0.8m and impairment of
right-of-use asset, net of reduction in lease liability, of
GBP0.2m.
We believe the Group is well placed to continue to deliver
further growth underpinned by our strategy and integrated business
model. Our balance sheet further supports investment opportunities
to deliver on our growth ambitions.
Taxation
The Group's tax charge for the year is GBP12.0m (2022:
GBP10.3m), an increase of GBP1.7m at an effective tax rate of 22.2%
(2022: 28.6%).
A reconciliation of the expected tax charge, at the standard
rate, to the actual charge is shown below:
GBPm % *
----------------------------- ----- ------
Profit before tax 53.9
----------------------------- ----- ------
Expected tax at UK standard
rate of tax 11.1 20.5%
Expenses not deductible
for tax purposes 1.3 2.4%
Adjustments to deferred
tax in respect of previous
periods 0.4 0.8%
Adjustments to previous
year tax charge (2.3) (4.3%)
Impact of unrecognised
losses 0.6 1.1%
Effect of difference between
closing deferred tax rate
and current tax rate 0.9 1.7%
----------------------------- ----- ------
Actual charge/effective
rate of tax 12.0 22.2%
----------------------------- ----- ------
* Percentage of profit before tax.
All of the Group's revenues and the majority of its expenses are
subject to corporation tax. The main expenses that are not
deductible for tax purposes are costs relating to acquisitions and
depreciation on fixed assets that do not qualify for tax relief.
Tax relief for some expenditure, mainly fixed assets, is received
over a longer period than that for which the costs are charged in
the financial statements.
Financial position
2023 2022 Change
GBPm GBPm GBPm
------------------------ ------- ------- ------
Intangible assets 256.1 216.5 39.6
Property, plant and
equipment 101.5 69.7 31.8
Right-of-use assets 102.9 101.7 1.2
Other non-current
assets - 2.4 (2.4)
Current assets 111.8 127.9 (16.1)
Current liabilities (105.1) (101.4) (3.7)
Non-current liabilities (210.6) (199.4) (11.2)
Equity 256.6 217.4 39.2
------------------------ ------- ------- ------
Intangible assets
The Group's intangible assets consist of goodwill, patient data
records and computer software. The increase during the year is
mainly from business combinations of GBP59.6m, partially offset by
amortisation of GBP22.6m. In addition, GBP0.8m was impaired and
treated as an exceptional item in respect of the closure of
Gilabbey. The Group reviews goodwill for impairment and as at 30
June 2023 maintains significant headroom with no indications of
impairment.
Plant, property and equipment
The Group's continued focus and commitment to investing in our
facilities and equipment resulted in additions of GBP44.5m,
(including business combinations) (2022: GBP23.7m), offset by a
depreciation charge in the year of GBP12.6m (2022: GBP11.3m).
Other non-current assets
The Group maintains a cash flow hedge for the purpose of hedging
interest rates; as at 30 June 2023 the fair value of this hedge was
GBP2.1m which is now included within current assets as the hedge
expires in February 2024 (2022: GBP2.3m). In addition, during the
year available for sale investments with a carrying value of
GBP0.1m were disposed.
Current assets
The net decrease in current assets of GBP16.1m to GBP111.8m from
GBP127.9m is driven from the reduction in cash held to GBP21.5m
from GBP49.0m; partially offset by an increase in working capital
balances, including stock and debtors following the growth in
revenue.
Equity
The net increase in equity of GBP39.2m is mainly attributable to
profit for the year of GBP41.9m (2022: GBP25.7m), transactions
related to share-based payments taken to reserves of GBP3.0m (2022:
GBP3.3m), partially offset by annual dividends of GBP5.0m (2022:
GBP4.6m).
Cash flow and movement in net debt
Net debt increased by GBP35.4m during the year from GBP35.3m to
GBP70.7m following an increase in investment in our facilities and
equipment of GBP45.7m from GBP24.5m and an increase in investment
in acquisitions in the UK of GBP54.6m from GBP8.4m.
The movement in net debt is explained as follows:
2023 2022
GBPm GBPm
------------------------------ ------ ------
Adjusted EBITDA 121.4 107.4
Working capital movements (10.9) (14.0)
Capital expenditure -
maintenance (11.4) (10.8)
Repayment of right-of-use
liabilities (14.1) (12.7)
------------------------------ ------ ------
Operating cash flow 85.0 69.9
Operating cash conversion
(%) 70.0% 65.1%
------------------------------ ------ ------
Taxation paid (14.9) (11.2)
Net interest paid (7.2) (6.4)
------------------------------ ------ ------
Free cash flow 62.9 52.3
Capital expenditure -
investment (34.3) (13.7)
Business combinations
(net of cash acquired)/other
investments (54.6) (20.8)
Contingent consideration (2.6) (0.3)
Dividends paid (5.0) (4.6)
Other financing activities (4.4) 2.4
------------------------------ ------ ------
Net (outflow)/inflow (38.0) 15.3
Increase/(decrease) in
unamortised borrowing
costs 2.6 (0.4)
------------------------------ ------ ------
(Increase)/decrease in
net debt (35.4) 14.9
------------------------------ ------ ------
The Group continues to remain highly cash generative with
operating cash flow of GBP85.0m (2022: GBP69.9m). Negative working
capital movements of GBP10.9m was mainly driven by an increase in
stock and other receivables.
Operating cash conversion of 70.0% (2022: 65.1%) was in line
with our capital markets day ambition of 70%.
Interest paid of GBP7.2m (2022: GBP6.4m) reflects the increasing
SONIA rates from 1.1874% on 30 June 2022 to 4.9286% on 30 June
2023, together with increased bank borrowings following enhanced
investment in capital expenditure and strategic acquisitions.
Maintenance capital expenditure of GBP11.4m (2022: GBP10.8m)
reflects expenditure required in order to maintain the quality of
our facilities and services.
Investment capital expenditure of GBP34.3m (2022: GBP13.7m)
includes new sites, relocations, significant refurbishments and
extensions and new equipment. We are pleased with the additional
investment we have made in the year and continue to see further
opportunities to grow organic revenue in line with our growth
ambitions and commitment to spend between GBP30.0m and GBP50.0m per
annum.
Business combinations of GBP54.6m (2022: GBP8.4m) consisted of
11 practices (comprising 16 practice sites). This investment in the
year is again in line with our growth ambition set out at the
Capital Markets Day in November 2022.
A dividend of GBP5.0m (2022: GBP4.6m) was paid in the year
reflecting a final dividend for the prior year of 7.0p per
share.
Other financing activities includes GBP3.6m of costs in respect
of refinancing our facilities which were capitalised on the balance
sheet.
Net debt and borrowing costs
The Group's net debt comprises the following:
2023 2022
GBPm GBPm
-------------------------- ------ ------
Borrowings repayable:
Within one year - -
After more than one year:
Term loan and revolving
credit facility 95.5 85.0
Unamortised borrowing
costs (3.3) (0.7)
-------------------------- ------ ------
Total borrowings 92.2 84.3
Cash and cash equivalents (21.5) (49.0)
-------------------------- ------ ------
Net debt 70.7 35.3
-------------------------- ------ ------
In February 2023, the Group successfully increased its loan
facilities from GBP170.0m to GBP350.0m which comprises a GBP87.5m
term loan and GBP262.5m revolving credit facility. This facility is
supported by eight banks and for a four-year term. The facility has
two key financial covenants:
-- net debt to bank test EBITDA of no more than 3.25x; and
-- bank-test EBITDA to interest ratio of no less than 4.5x.
Bank test EBITDA is based on the last twelve months' adjusted
EBITDA performance annualised for the effect of acquisitions,
deducting costs relating to business combinations and adding back
share option expense, prior to the adoption of IFRS 16.
The increase in loan facilities supports the Group's ambition to
continue to invest via both organic growth and acquisition
opportunities in the future in line with our Capital Markets Day
ambitions.
The Group manages its banking arrangements centrally. Funds are
swept daily from its various bank accounts into central bank
accounts to optimise the Group's net interest payable position.
Interest rate risk is also managed centrally and derivative
instruments are used to mitigate this risk. On 28 February 2020,
the Group entered into two four-year fixed interest rate swap
arrangements to hedge fluctuations in interest rates on GBP70.0m of
its term loan facility, which end on 31 January 2024. In the prior
year the two hedge arrangements were transitioned from LIBOR to the
SONIA benchmark rate.
The Group has a strong balance sheet with a leverage at 30 June
2023 of 0.73x, an increase from 0.40x at 30 June 2022. The Group
has the ability to generate cash which enables it to effectively
manage working capital. The Group targets a long-term net debt to
EBITDA ratio of less than 2.0x and closely monitors this in line
with acquisition investment opportunities.
Going concern and viability
At the 30 June 2023, the Group had cash balances of GBP21.5m and
an unutilised overdraft facility of GBP5.0m. Total facilities of
GBP350.0m, of which GBP254.5m were undrawn at 30 June 2023, are
available to support the Group's organic and acquisitive growth
initiatives over the coming years, comprising a term loan of
GBP87.5m and an RCF of GBP262.5m. The Group is fully compliant with
all covenants in respect of these facilities.
The Directors consider that the GBP5.0m overdraft and the
GBP350.0m facility enable them to meet all current liabilities when
they fall due. Since the year end, the Group has continued to trade
profitably and to generate cash.
After consideration of market conditions, the Group's financial
position (including the level of headroom available within the bank
facilities), financial forecasts for the five years to 30 June
2028, its profile of cash generation and the timing and amount of
bank borrowings repayable, and principal risks, the Directors have
a reasonable expectation that both the Company and the Group will
be able to continue in operation and meet its liabilities as they
fall due over the period. For this reason, the going concern basis
continues to be adopted in preparing the financial statements.
Share price performance
At the year end the Company's market capitalisation was GBP1.4bn
(1,970p per share), compared to GBP1.2bn (1,656p per share) at the
previous year end.
Key contractual arrangements
The Directors consider that the Group has only two significant
third-party supplier contracts which are for the supply of
veterinary drugs. In the event that these suppliers ceased trading,
the Group would be able to continue in business without significant
disruption in trading by purchasing from alternative suppliers.
Forward-looking arrangements
Certain statements and arrangements described in the Annual
Report and results release are forward looking. Although the Board
is comfortable that the expectations reflected in these
forward-looking statements are reasonable, it can give no assurance
that these expectations will prove to be correct. Because these
statements involve risks and uncertainties, actual results may
differ materially from those expressed or implied by these
forward-looking statements.
Robin Alfonso
Chief Financial Officer
21 September 2023
The Group's principal risks and uncertainties are available on
pages 60 to 68 of the Group's FY23 Annual Report and the Group's
key performance indicators are available on pages 24 to 27 of the
Group's FY23 Annual Report.
Consolidated income statement
for the year ended 30 June 2023
2023 2022
Note GBPm GBPm
---------------------------------- ---- ------- -------
Revenue 2 608.3 554.2
Cost of sales (346.0) (315.1)
---------------------------------- ---- ------- -------
Gross profit 262.3 239.1
Administrative expenses (200.0) (196.3)
---------------------------------- ---- ------- -------
Operating profit 62.3 42.8
Finance expense (8.4) (6.8)
---------------------------------- ---- ------- -------
Profit before tax 2 53.9 36.0
Tax expense 3 (12.0) (10.3)
---------------------------------- ---- ------- -------
Profit for the year 41.9 25.7
---------------------------------- ---- ------- -------
Earnings per Ordinary share (EPS)
Basic 4 58.8p 36.2p
Diluted 4 58.5p 35.9p
---------------------------------- ---- ------- -------
All activities derive from continuing operations.
Reconciliation of alternative performance measures
The Directors believe that adjusted measures, being adjusted
EBITDA, adjusted PBT and adjusted EPS, provide additional useful
information for shareholders. These measures are used by the Board
and management for planning, internal reporting and setting
Director and management remuneration. In addition, they are used by
the investor analyst community and are aligned to our strategy and
KPls. These measures are not defined by IFRS and therefore may not
be directly comparable with other companies' adjusted measures.
Adjusted EBITDA is calculated by reference to profit before tax,
adjusted for interest (net finance expense), depreciation,
amortisation, costs relating to business combinations and
exceptional items. The following table provides the calculation of
adjusted EBITDA:
2023 2022
Alternative performance measure: adjusted EBITDA Note GBPm GBPm
---------------------------------------------------- ---- ----- -----
Profit before income tax 53.9 36.0
Adjustments for:
Finance expense 8.4 6.8
Amortisation of intangible assets 22.6 22.2
Depreciation of property, plant and equipment 12.6 11.3
Depreciation of right-of-use assets 15.2 14.1
Profit on disposal of property, plant and equipment
and right-of-use assets (0.2) (0.3)
Costs relating to business combinations1 6.6 4.9
Exceptional items2 2.3 12.4
---------------------------------------------------- ---- ----- -----
Adjusted EBITDA 2 121.4 107.4
---------------------------------------------------- ---- ----- -----
Adjusted earnings per share (EPS):
Adjusted EPS 4 96.0p 85.8p
Diluted adjusted EPS 4 95.5p 85.0p
---------------------------------------------------- ---- ----- -----
1. Includes amounts paid in respect of acquisitions in prior
years expensed to the income statement.
2. Exceptional items relate to impairment in respect of the
Gilabbey Veterinary practice closure in the current year and the
impairment of Quality Pet Care Ltd in the prior year. Further
information is available in note 6 of the FY23 Annual report.
Consolidated statement of financial position
as at 30 June 2023
Company registration number: 06312831
Group Group
2023 2022
Note GBPm GBPm
------------------------------------- ---- ------- -------
Non-current assets
Intangible assets 256.1 216.5
Property, plant and equipment 101.5 69.7
Right-of-use assets 102.9 101.7
Investments - 0.1
Amounts owed by Group undertakings - -
Derivative financial instruments - 2.3
------------------------------------- ---- ------- -------
460.5 390.3
------------------------------------- ---- ------- -------
Current assets
Inventories 28.4 26.2
Trade and other receivables 58.1 52.7
Derivative financial instruments 2.1 -
Current tax receivable 1.7 -
Cash and cash equivalents 21.5 49.0
------------------------------------- ---- ------- -------
111.8 127.9
------------------------------------- ---- ------- -------
Total assets 2 572.3 518.2
------------------------------------- ---- ------- -------
Current liabilities
Trade and other payables (91.1) (86.6)
Provisions (0.7) (2.1)
Lease liabilities (13.3) (9.4)
Current tax liabilities - (3.3)
------------------------------------- ---- ------- -------
(105.1) (101.4)
------------------------------------- ---- ------- -------
Non-current liabilities
Borrowings 6 (92.2) (84.3)
Lease liabilities (93.6) (95.1)
Deferred tax liabilities (24.8) (20.0)
------------------------------------- ---- ------- -------
(210.6) (199.4)
------------------------------------- ---- ------- -------
Total liabilities 2 (315.7) (300.8)
------------------------------------- ---- ------- -------
Net assets 256.6 217.4
------------------------------------- ---- ------- -------
Shareholders' equity
Share capital 0.1 0.1
Share premium 107.0 105.4
Capital redemption reserve 0.6 0.6
Treasury reserve - -
Cash flow hedge reserve 1.4 1.6
Cost of hedging reserve - -
Merger reserve (61.4) (61.4)
Foreign exchange translation reserve (0.2) -
Retained earnings 209.1 171.1
------------------------------------- ---- ------- -------
Total equity 256.6 217.4
------------------------------------- ---- ------- -------
The financial information comprising the consolidated income
statement, the statement of consolidated comprehensive income, the
consolidated balance sheet, the consolidated statement of changes
in shareholders' equity, the consolidated cash flow statement and
related notes, were authorised for issue by the Board of Directors
on 21 September 2023 and were signed on its behalf by:
Richard Fairman Robin Alfonso
Director Director
Consolidated statement of changes in equity
for the year ended 30 June 2023
Cash Cost Foreign
Capital flow of exchange
Share Share redemption Treasury hedge hedging Merger translation Retained Total
capital premium reserve reserve reserve reserve reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
At 1 July 2022 0.1 105.4 0.6 - 1.6 - (61.4) - 171.1 217.4
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Profit for the year - - - - - - - - 41.9 41.9
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Other comprehensive
income and losses
Cash flow hedges:
Fair value loss - - - - (0.2) - - - - (0.2)
Deferred tax on
cash
flow hedge and
available-for-sale
financial assets - - - - - - - - - -
Exchange differences
on translation of
foreign operations - - - - - - - (0.2) - (0.2)
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Total other
comprehensive
loss - - - - (0.2) - - (0.2) - (0.4)
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Total comprehensive
(loss)/income - - - - (0.2) - - (0.2) 41.9 41.5
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Transactions with
owners
Issue of Ordinary
shares - 1.6 - - - - - - - 1.6
Purchase of Treasury
Shares - - - (1.2) - - - - - (1.2)
Disposal of Treasury
shares - - - 1.2 - - - - (0.7) 0.5
Credit to reserves
for share -- based
payments - - - - - - - - 1.7 1.7
Deferred tax relating
to share -- based
payments - - - - - - - - 0.1 0.1
Dividends to equity
holders of the
Company - - - - - - - - (5.0) (5.0)
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Total transactions
with owners - 1.6 - - - - - - (3.9) (2.3)
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
At 30 June 2023 0.1 107.0 0.6 - 1.4 - (61.4) (0.2) 209.1 256.6
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Cash Cost Foreign
Capital flow of exchange
Share Share redemption Treasury hedge hedging Merger translation Retained Total
capital premium reserve reserve reserve reserve reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
At 1 July 2021 0.1 103.1 0.6 - (0.5) 0.1 (61.4) - 149.1 191.1
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Profit for the year - - - - - - - - 25.7 25.7
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Other comprehensive
income and losses
Cash flow hedges:
Fair value
income/(loss) - - - - 2.8 (0.1) - - - 2.7
Deferred tax on
cash flow hedge
and
available-for-sale
financial assets - - - - (0.7) - - - - (0.7)
Exchange differences
on translation of
foreign operations - - - - - - - - (0.1) (0.1)
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Total other
comprehensive
(loss)/income - - - - 2.1 (0.1) - - (0.1) 1.9
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Total comprehensive
income/(loss) - - - - 2.1 (0.1) - - 25.6 27.6
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Transactions with
owners
Issue of Ordinary
shares - 2.3 - - - - - - - 2.3
Disposal of treasury
reserve - - - - - - - - - -
Credit to reserves
for share -- based
payments - - - - - - - - 2.3 2.3
Deferred tax relating
to share-based
payments - - - - - - - - (1.3) (1.3)
Dividends to equity
holders of the
Company - - - - - - - - (4.6) (4.6)
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Total transactions
with owners - 2.3 - - - - - - (3.6) (1.3)
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
At 30 June 2022 0.1 105.4 0.6 - 1.6 - (61.4) - 171.1 217.4
---------------------- ------- ------- ---------- -------- ------- ------- ------- ----------- -------- ------
Consolidated statement of cash flow
for the year ended 30 June 2023
Group Group
2023 2022
Note GBPm GBPm
----------------------------------------------------- ---- ------ ------
Cash flows from operating activities
Cash generated from operations 8 107.9 93.1
Taxation paid (14.9) (11.2)
Interest paid (7.2) (6.4)
Exceptional items (1.3) -
----------------------------------------------------- ---- ------ ------
Net cash generated from operating activities 84.5 75.5
----------------------------------------------------- ---- ------ ------
Cash flows from investing activities
Business combinations (net of cash acquired) 5 (54.6) (8.4)
Purchase of property, plant and equipment (42.3) (23.0)
Proceeds from sale of property, plant and equipment 0.3 0.2
Purchase of intangible assets (3.4) (1.5)
Purchase of other investments - (21.4)
Proceeds from sale of other investments 0.1 9.0
----------------------------------------------------- ---- ------ ------
Net cash used in investing activities (99.9) (45.1)
----------------------------------------------------- ---- ------ ------
Cash flows from financing activities
Dividends paid 7 (5.0) (4.6)
Proceeds from issue of Ordinary shares 1.6 2.3
Proceeds from sale of Treasury shares 0.5 -
Purchase of Treasury shares (1.2) -
Repayment of obligations under right-of-use assets (14.1) (12.7)
Debt issuance costs (3.6) -
Repayment of borrowings (0.8) (0.1)
Increase of borrowings 10.5 -
----------------------------------------------------- ---- ------ ------
Net cash used in financing activities (12.1) (15.1)
----------------------------------------------------- ---- ------ ------
Net (decrease)/increase in cash and cash equivalents (27.5) 15.3
Cash and cash equivalents at the beginning of the
year 49.0 33.7
----------------------------------------------------- ---- ------ ------
Cash and cash equivalents at the end of the year 21.5 49.0
----------------------------------------------------- ---- ------ ------
Notes to the consolidated financial statements
for the year ended 30 June 2023
1. General information
The principal activity of CVS Group plc, together with its
subsidiaries ("the Group"), is to operate veterinary practices,
complementary veterinary diagnostic businesses, pet crematoria and
an online pharmacy and retail business. The principal activity of
CVS Group plc ("the Company") is that of a holding company.
CVS Group plc is a public limited company incorporated under the
Companies Act 2006 and domiciled in England and Wales and its
shares are quoted on AIM of the London Stock Exchange (CVSG). Its
company registration number is 06312831 and registered office is
CVS House, Owen Road, Diss, Norfolk IP22 4ER.
Statement under s498 - publication of non-statutory accounts
The financial information set out in this preliminary
announcement does not constitute statutory financial statements for
the years ended 30 June 2023 or 2022, for the purpose of the
Companies Act 2006, but is derived from those financial statements.
Statutory financial statements for 2023, on which the Group's
auditors have given an unqualified report which does not contain
statements under Section 498(2) or (3) of the Companies Act 2006,
will be filed with the Registrar of Companies subsequent to the
Group's next annual general meeting. Statutory financial statements
for 2022 have been filed with the Registrar of Companies. The
Group's auditors have reported on those accounts; their reports
were unqualified and did not contain statements under Section
498(2) or (3) of the Companies Act 2006.
Basis of preparation
The consolidated and Company financial statements of CVS Group
plc have been prepared in accordance with United Kingdom
adopted international accounting standards as applied in
accordance with the provisions of the Companies Act 2006 and
applicable law. The consolidated financial statements have been
prepared on a going concern basis and under the historical cost
convention, except for certain financial instruments that have been
measured at fair value.
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. For this reason,
they continue to adopt the going concern basis in preparing the
FY23 financial statements. Further details are provided in the
Directors' Report of the Group's FY23 Annual Report.
The accounting policies set out in the FY23 Annual Report have,
unless otherwise stated, been applied consistently to all years
presented in the financial statements.
Use of alternative performance measures
Adjusted EBITDA (Earnings Before Interest, Tax, Depreciation and
Amortisation), adjusted profit before tax (adjusted PBT) and
adjusted earnings per share (adjusted EPS)
The Directors believe that adjusted measures, being adjusted
EBITDA, adjusted PBT and adjusted EPS, provide additional useful
information for shareholders. These measures are used by the Board
and management for planning, internal reporting and setting
Director and management remuneration. In addition, they are used by
the investor analyst community and are aligned to our strategy and
KPls. These measures are not defined by International Financial
Reporting Standards (IFRS) and therefore may not be directly
comparable with other companies' adjusted measures. They are not
intended to be a substitute for, or superior to, IFRS measurements
of profit or earnings per share.
Adjusted EBITDA is calculated by reference to profit before tax,
adjusted for interest (net finance expense), depreciation,
amortisation, costs relating to business combinations and
exceptional items.
Adjusted PBT is calculated as profit before tax, amortisation,
costs relating to business combinations and exceptional items.
Adjusted EPS is calculated as adjusted PBT, less applicable tax,
divided by the weighted average number of Ordinary shares in issue
in the period.
The following table provides the calculation of adjusted EBITDA
as defined above:
2023 2022
Alternative performance measure: adjusted EBITDA Note GBPm GBPm
---------------------------------------------------- ---- ----- -----
Profit before income tax 53.9 36.0
Adjustments for:
Finance expense 8.4 6.8
Amortisation of intangible assets 22.6 22.2
Depreciation of property, plant and equipment 12.6 11.3
Depreciation of right-of-use assets 15.2 14.1
Profit on disposal of property, plant and equipment
and right-of-use assets (0.2) (0.3)
Costs relating to business combinations1 6.6 4.9
Exceptional items2 2.3 12.4
---------------------------------------------------- ---- ----- -----
Adjusted EBITDA 2 121.4 107.4
---------------------------------------------------- ---- ----- -----
Adjusted earnings per share (EPS):
Adjusted EPS 4 96.0p 85.8p
Diluted adjusted EPS 4 95.5p 85.0p
---------------------------------------------------- ---- ----- -----
1. Includes amounts paid in respect of acquisitions in prior
years expensed to the income statement.
2. Exceptional items relate to impairment and trading losses in
respect of the Gilabbey Veterinary Hospital closure in the current
year and the impairment of Quality Pet Care Ltd in the prior year.
Further information is available in note 6 of the FY23 Annual
report.
The reconciliations for adjusted PBT and adjusted EPS can be
found in note 4.
Net debt
Net debt is calculated as bank borrowings less gross cash and
cash equivalents and unamortised borrowing costs.
2023 2022
Note GBPm GBPm
----------------------------------------------- ---- ------ ------
Borrowings repayable after more than one year:
Term loan and revolving credit facility 95.5 85.0
Unamortised borrowing costs (3.3) (0.7)
----------------------------------------------- ---- ------ ------
Total borrowings 6 92.2 84.3
Cash and cash equivalents (21.5) (49.0)
----------------------------------------------- ---- ------ ------
Net debt 70.7 35.3
----------------------------------------------- ---- ------ ------
For bank covenant reporting, an alternative calculation for net
debt in used. This definition can be found in note 3 of the FY23
Annual report.
Like-for-like sales
Like-for-like sales shows revenue generated from like-for-like
operations compared to the prior year, adjusted for the number of
working days. For example, for a practice acquired in September
2021, revenue is included from September 2022 in the like -- for --
like calculations.
Critical accounting estimates and judgements
Accounting estimate: Research and Development Expenditure Tax
Credit (RDEC)
Certain companies within the Group may be entitled to claim tax
credits in relation to the Research and Development Expenditure Tax
Credit (RDEC) scheme in the UK. Tax credits receivable under this
scheme are determined to have the substance of a government grant
and accordingly these tax credits are accounted for under IAS 20.
Further information can be found in the Government grants
accounting policy.
The Group has recognised GBP1.8m in respect of their estimated
claim for the current year, being 2023, which is after applying a
discount of GBP5.2m to reflect uncertainty. The Group has also
recorded GBP5.7m in respect of claims submitted for 2022 and 2021,
after applying a discount of GBP5.7m, and a further GBP4.0m in
respect of earlier years following the expiry of the enquiry
windows for those claims.
The total RDEC in the consolidated income statement is therefore
GBP11.5m (2022: GBP2.0m).
The Group has recognised GBP15.5m to date for claims already
filed, or as estimates for claims yet to be made for qualifying
expenditure that has already been incurred. Of this amount, GBP7.5m
has an open enquiry window, and this would therefore be the maximum
amount that could be disallowed in the event of challenge from
HMRC. Alternatively, the maximum income that will be recorded in
future periods in relation to R&D expenditure that has already
taken place is estimated to be GBP11.0m, which would arise if all
previously submitted claims were paid in full, and the estimate for
2023, which is yet to be submitted, was also recovered in full.
Management's policy remains to recognise the remainder of
submitted claims when the uncertainty has been removed either via
formal acceptance of the claims, or the expiry of the enquiry
windows.
The net benefit of the RDEC scheme in the year was GBP9.6m after
associated costs (2022: GBP2.0m).
2. Segment reporting
Segment information is presented in respect of the Group's
business and geographical segments. The primary format, operating
segments, is based on the Group's management and internal reporting
structure and monitored by the Group's Chief Operating Decision
Maker.
Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis. Unallocated items comprise mainly
interest-bearing borrowings and associated costs, tax-related
assets and liabilities, costs relating to business combinations,
and Head Office salary and premises costs.
Revenue comprises GBP441.7m of fees and GBP166.6m of goods
(2022: GBP398.1m and GBP156.1m respectively).
Operating segments
The Group is split into four operating segments (Veterinary
Practices, Laboratories, Crematoria and Online Retail Business) and
a centralised support function (Central administration) for
business segment analysis. In identifying these operating segments,
management generally follows the Group's service lines representing
its main products and services.
Each of these operating segments is managed separately as each
segment requires different specialisms, marketing approaches and
resources. Intra-group sales eliminations are included within the
Central administration segment. Central administration includes
costs relating to the employees, property and other overhead costs
associated with the centralised support function together with
finance costs arising on the Group's borrowings.
Online
Veterinary Retail Central
Practices Laboratories Crematoria Business administration Group
Year ended 30 June 2023 GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ---------- ------------ ---------- --------- --------------- -------
Revenue 541.6 29.3 10.9 49.1 (22.6) 608.3
Adjusted EBITDA 116.6 9.2 3.6 3.9 (11.9) 121.4
Profit/(loss) before tax 59.7 8.2 3.1 3.8 (20.9) 53.9
Total assets 471.9 44.0 23.9 19.4 13.1 572.3
Total liabilities (171.3) (5.3) (3.2) (15.5) (120.4) (315.7)
-------------------------------------- ---------- ------------ ---------- --------- --------------- -------
Reconciliation of adjusted
EBITDA
Profit/(loss) before tax 59.7 8.2 3.1 3.8 (20.9) 53.9
Finance expense 4.2 - - - 4.2 8.4
Amortisation of intangible
assets 22.5 - 0.1 - 22.6
Depreciation of property,
plant and equipment 10.9 0.9 0.5 - 0.3 12.6
Depreciation of right-of-use
assets 14.7 0.1 - - 0.4 15.2
Profit on disposal of property,
plant and equipment and right-of-use
assets (0.2) - - - - (0.2)
Costs relating to business
combinations 2.5 - - - 4.1 6.6
Exceptional items 2.3 - - - - 2.3
-------------------------------------- ---------- ------------ ---------- --------- --------------- -------
Adjusted EBITDA 116.6 9.2 3.6 3.9 (11.9) 121.4
-------------------------------------- ---------- ------------ ---------- --------- --------------- -------
Online
Veterinary Retail Central
Practices Laboratories Crematoria Business administration Group
Year ended 30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ---------- ------------ ---------- --------- --------------- -------
Revenue 492.1 27.2 9.5 46.6 (21.2) 554.2
Adjusted EBITDA 108.8 8.3 3.4 3.5 (16.6) 107.4
Profit/(loss) before tax 57.3 7.6 2.9 3.4 (35.2) 36.0
Total assets 426.0 38.6 20.1 27.9 5.6 518.2
Total liabilities (170.6) (5.1) (2.2) (18.6) (104.3) (300.8)
-------------------------------------- ---------- ------------ ---------- --------- --------------- -------
Reconciliation of adjusted
EBITDA
Profit/(loss) before tax 57.3 7.6 2.9 3.4 (35.2) 36.0
Finance expense 4.1 - - - 2.7 6.8
Amortisation of intangible
assets* 22.1 - - 0.1 - 22.2
Depreciation of property,
plant and equipment 9.9 0.6 0.5 - 0.3 11.3
Depreciation of right-of-use
assets 13.7 0.1 - - 0.3 14.1
Profit on disposal of property,
plant and equipment and right-of-use
assets (0.3) - - - - (0.3)
Costs relating to business
combinations 2.0 - - - 2.9 4.9
Exceptional items - - - - 12.4 12.4
-------------------------------------- ---------- ------------ ---------- --------- --------------- -------
Adjusted EBITDA 108.8 8.3 3.4 3.5 (16.6) 107.4
-------------------------------------- ---------- ------------ ---------- --------- --------------- -------
* Amortisation of intangibles in the prior year of GBP7.5m has
been re-allocated from Central administration to Veterinary
practices to better reflect the nature of the charge.
Geographical segments
The business operates predominantly in the UK. As at 30 June
2023, it has 27 veterinary practices in the Netherlands and three
in the Republic of Ireland. It performs a small amount of
laboratory work and teleradiology work for Europe-based clients and
a small amount of teleradiology work for clients based in the rest
of the world. In accordance with IFRS 8, 'Operating Segments', no
segment results are presented for trade with clients in Europe or
the rest of the world as these are not reported separately for
management reporting purposes and are not considered material for
separate disclosure.
3. Tax expense
a) Analysis of tax expense recognised in the income
statement
2023 2022
GBPm GBPm
-------------------------------------------------- ----- -----
Current tax
Current tax on profits for the year 14.1 13.1
Adjustments in respect of previous years (2.3) -
--------------------------------------------------- ----- -----
Total current tax charge 11.8 13.1
--------------------------------------------------- ----- -----
Deferred tax
Origination and reversal of temporary differences (0.2) (2.4)
Adjustments in respect of previous years 0.4 (0.4)
--------------------------------------------------- ----- -----
Total deferred tax charge/(credit) 0.2 (2.8)
--------------------------------------------------- ----- -----
Total tax expense 12.0 10.3
--------------------------------------------------- ----- -----
b) Reconciliation of effective tax charge
UK corporation tax rate is calculated using the blended standard
rate of tax for the year of 20.5% (2022: 19.0%). Taxation for other
jurisdictions is calculated at the rates prevailing in the
respective jurisdictions. The total taxation charge for the year
differs from the theoretical amount that would arise using the
blended standard rate of UK corporation tax of 20.5% (2022: 19.0%)
as explained below:
2023 2022
GBPm GBPm
---------------------------------------------------------- ----- -----
Profit before tax 53.9 36.0
---------------------------------------------------------- ----- -----
Effective tax charge at 20.5% (2022: 19.0%) 11.1 6.8
Effects of:
Expenses not deductible for tax purposes 1.3 1.2
Loss on disposal of non-qualifying assets - 2.3
Adjustments to deferred tax charge in respect of previous
years 0.4 (0.4)
Adjustments to current tax charge in respect of previous
years (2.3) -
Current year tax losses not recognised/utilisation of
brought forward losses previously unrecognised 0.6 0.2
Effect of difference between closing deferred tax rate
and current tax rate 0.9 0.2
---------------------------------------------------------- ----- -----
Total tax expense 12.0 10.3
---------------------------------------------------------- ----- -----
Factors affecting the current tax charge
UK corporation tax is calculated at 20.5% (2022: 19.0%) of the
estimated assessable profit for the year. Tax for other
jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
The effective tax rate on reported profits is 22.2% (2022:
28.6%) and has decreased from the prior year mainly due to the
non-recurring impact in the prior year of the impairment and
subsequent disposal of an investment, which resulted in tax losses
of GBP13.4m.
Changes in tax rates
The UK corporation tax rate for the period up to 31 March 2023
was 19.0% and increased to 25% from 1 April 2023 (2022: 19.0%).
Uncertain tax position
The Group recognises taxation based on estimates of whether
taxes will be due. No material uncertain tax positions existed at
30 June 2023 or 30 June 2022.
4. Earnings per Ordinary share
a) Basic
2023 2022
---------------------------------------------------- ---------- ----------
Profit for the year (GBPm) 41.9 25.7
---------------------------------------------------- ---------- ----------
Weighted average number of Ordinary shares in issue 71,272,880 70,926,977
---------------------------------------------------- ---------- ----------
Basic earnings per share (pence) 58.8 36.2
---------------------------------------------------- ---------- ----------
b) Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of Ordinary shares outstanding to assume
conversion of all dilutive potential Ordinary shares. The Company
has potentially dilutive Ordinary shares, being the contingently
issuable shares under the Group's LTIP schemes and SAYE schemes.
For both share option schemes, a calculation is undertaken to
determine the number of shares that could have been acquired at
fair value (determined as the average annual market share price of
the Company's shares) based on the monetary value of the
subscription rights attached to outstanding share options. The
number of shares calculated as above is compared with the number of
shares that would have been issued assuming the exercise of the
share options.
2023 2022
----------------------------------------------------------- ---------- ----------
Profit for the year (GBPm) 41.9 25.7
----------------------------------------------------------- ---------- ----------
Weighted average number of Ordinary shares in issue 71,272,880 70,926,977
Adjustment for contingently issuable shares - LTIPs 173,688 248,506
Adjustment for contingently issuable shares - SAYE schemes 205,853 377,056
----------------------------------------------------------- ---------- ----------
Weighted average number of Ordinary shares for diluted
earnings per share 71,652,421 71,552,539
----------------------------------------------------------- ---------- ----------
Diluted earnings per share (pence) 58.5 35.9
----------------------------------------------------------- ---------- ----------
Alternative performance measure: adjusted earnings per share
2023 2022
GBPm GBPm
---------------------------------------------------- ---------- ----------
Profit before tax 53.9 36.0
Adjustments for:
Amortisation of intangible assets 22.6 22.2
Costs relating to business combinations 6.6 4.9
Exceptional items 2.3 12.4
----------------------------------------------------- ---------- ----------
Adjusted profit before tax 85.4 75.5
Tax expense amended for the above adjustments (17.0) (14.6)
----------------------------------------------------- ---------- ----------
Adjusted profit after tax 68.4 60.9
----------------------------------------------------- ---------- ----------
Weighted average number of Ordinary shares in issue 71,272,880 70,926,977
Weighted average number of Ordinary shares for
diluted earnings per share 71,652,421 71,552,539
----------------------------------------------------- ---------- ----------
Pence Pence
------------------------------------ ----- -----
Adjusted earnings per share 96.0 85.8
------------------------------------- ----- -----
Diluted adjusted earnings per share 95.5 85.0
------------------------------------- ----- -----
5. Business combinations
Details of business combinations in the year ended 30 June 2023
are set out below. The reason for each acquisition was to expand
the CVS Group business through acquisitions aligned to our
strategic goals.
Name of business combination Date of acquisition
------------------------------------------------ -------------------
Werrington Vets Limited 27 July 2022
16 September
Woodlands Veterinary Clinic Limited 2022
Market Cross Veterinary Clinic Limited 18 October 2022
Seadown Veterinary Services Ltd 09 November 2022
The Harrogate Vet Limited 24 November 2022
AT Animal Care Limited 24 January 2023
Macqueen Veterinary Practice (trade and assets) 26 January 2023
Matt Smith Pet Care Limited 26 January 2023
East of England Veterinary Specialists Limited 28 February 2023
Brunswick Veterinary Practice (trade and assets) 31 March 2023
Top Vets Limited 25 May 2023
------------------------------------------------ -------------------
All businesses were acquired via 100% share purchase agreement
unless indicated otherwise in the table above.
Given the nature of the veterinary practices acquired and the
records maintained by such practices, it is not practicable to
disclose the revenue or profit or loss of the combined entity for
the year as though the acquisition date for all business
combinations during the year had been at the beginning of that
year.
The table below summarises the total assets acquired through
business combinations in the year ended 30 June 2023:
Book value
of
acquired Fair value
assets adjustments Fair value
GBPm GBPm GBPm
------------------------------------------ ---------- ------------ ----------
Property, plant and equipment 2.2 - 2.2
Patient data records - 17.3 17.3
Right-of-use assets 4.3 - 4.3
Inventories 0.4 - 0.4
Deferred tax liability (0.3) (4.4) (4.7)
Trade and other receivables 3.6 - 3.6
Trade and other payables (2.8) - (2.8)
Loans (0.8) - (0.8)
Lease liabilities (4.3) - (4.3)
------------------------------------------- ---------- ------------ ----------
Total identifiable assets 2.3 12.9 15.2
------------------------------------------- ---------- ------------ ----------
Goodwill 42.1
------------------------------------------- ---------- ------------ ----------
Total consideration (net of cash acquired
of GBP5.0m) 57.3
------------------------------------------- ---------- ------------ ----------
Initial consideration paid (net of cash
acquired of GBP5.0m) 54.6
Deferred consideration payable 1.2
Contingent consideration payable 1.5
------------------------------------------- ---------- ------------ ----------
Total consideration (net of cash acquired
of GBP5.0m) 57.3
------------------------------------------- ---------- ------------ ----------
The total consideration of GBP57.3m is prior to the agreement of
the completion accounts. The amounts recognised are subject to
adjustment in line with IFRS 3 for up to twelve months from
acquisition, with goodwill being adjusted accordingly.
Contingent consideration payable relates to a business
combination made in the year where consideration is payable over a
3 year period based on the practice reaching certain adjusted
EBITDA targets. This is held at fair value and it is expected that
this will be payable.
Goodwill recognised represents the excess of purchase
consideration over the fair value of the identifiable net assets.
Goodwill reflects the synergies arising from the combination of the
businesses; this includes cost synergies arising from shared
support functions and buying power synergies. Goodwill includes the
recognition of an amount equal to the deferred tax that arises on
non-qualifying fixed assets acquired under a business
combination.
Post-acquisition revenue and post-acquisition adjusted EBITDA
were GBP10.7m and GBP2.4m respectively. The post-acquisition period
is from the date of acquisition to 30 June 2023. Post-acquisition
EBITDA represents the direct operating result of practices from the
date of acquisition to 30 June 2023 prior to the allocation of
central overheads, on the basis that it is not practicable to
allocate these.
Goodwill and intangible assets recognised in the year relating
to business combinations are not expected to be deductible for tax
purposes.
Acquisition costs of GBP4.4m (2022: GBP4.9m) are included within
other expenses in note 6 of the financial statements.
The Directors do not consider any individual in-year acquisition
to be material to the Group and therefore have not separately
disclosed these.
Business combinations in previous years
Details of business combinations in the comparative year are
presented in the consolidated financial statements for the year
ended 30 June 2022. During the year GBPnil (2022: GBP0.4m) was paid
to settle deferred consideration payable from the prior year.
Business combinations subsequent to the year end
Details of business combinations made subsequent to the year end
are set out below. The reason for each acquisition was to expand
the CVS Group business through acquisitions aligned to our
strategic goals.
% Share capital Country of
Name of business combination acquired Date of acquisition incorporation
------------------------------ --------------- ------------------- --------------
Vetright Pty Ltd* 75% 26 July 2023 Australia
McDowall Veterinary Hospital
Pty. Ltd 100% 26 July 2023 Australia
Brunker Road Veterinary Centre
Pty Limited 100% 17 August 2023 Australia
North Road Veterinary Centre Trade and asset 23 August 2023 Australia
Cattle Dog Health Pty Ltd 100% 23 August 2023 Australia
------------------------------ --------------- ------------------- --------------
The table below summarises the total assets acquired through
business combinations subsequent to the year end:
Book value
of
acquired Fair value
assets adjustments Fair value
GBPm GBPm GBPm
------------------------------------------ ---------- ------------ ----------
Property, plant and equipment 0.5 - 0.5
Patient data records - 13.5 13.5
Right-of-use assets 1.1 - 1.1
Inventories 0.2 - 0.2
Deferred tax liability - (4.1) (4.0)
Trade and other receivables 0.3 - 0.3
Trade and other payables (0.8) - (0.8)
Loans (0.2) - (0.2)
Lease liabilities (1.1) - (1.1)
------------------------------------------- ---------- ------------ ----------
Total identifiable (liabilities)/assets - 9.4 9.4
------------------------------------------- ---------- ------------ ----------
Goodwill 15.0
------------------------------------------- ---------- ------------ ----------
Total consideration (net of cash acquired
of GBP0.5m) 24.4
------------------------------------------- ---------- ------------ ----------
Initial consideration paid (net of cash
acquired of GBP0.5m) 23.8
Deferred consideration payable 0.6
------------------------------------------- ---------- ------------ ----------
Total consideration (net of cash acquired
of GBP0.5m) 24.4
------------------------------------------- ---------- ------------ ----------
* On 26 July 2023, the Group acquired a 75% interest in Vetright
Ptd Ltd (included on page 140) in Australia for initial cash
consideration of GBP8.7m. The identifiable net assets at
acquisition were valued at GBP5.7m, of which 25% will be attributed
to Non-Controlling Interest (NCI). NCI are measured at the
proportionate share of the identifiable net assets at the date of
acquisition. The acquisition comprised net assets (being
principally patient data records) with a fair value of GBP5.1m,
resulting in goodwill of GBP5.3m.
The total consideration of GBP24.4m is prior to the agreement of
the completion accounts. The amounts recognised are subject to
adjustment in line with IFRS 3 for up to twelve months from
acquisition, with goodwill being adjusted accordingly.
Goodwill and intangible assets recognised in the year relating
to business combinations are not expected to be deductible for tax
purposes.
In addition to the above, the Group has made a further two
acquisitions:
On 15 September 2023, the Group completed the purchase of 100.0%
of the share capital of Bridge Veterinary Practice Limited, a
company registered in England and Wales, for initial cash
consideration of GBP3.5m. This is a business comprising one
companion animal veterinary practice site in the UK. Assets
acquired comprised principally goodwill and intangible patient data
records with a provisional fair value of GBP3.7m.
On 18 September 2023, the Group completed the purchase of 100.0%
of the share capital of Masefield Veterinary Services Ltd, a
company registered in England and Wales, for initial cash
consideration of GBP3.1m, This is a business comprising one
companion animal veterinary practice site in the UK. Assets
acquired comprised principally goodwill and intangible patient data
records with a provisional fair value of GBP3.0m.
6. Borrowings
Borrowings comprise bank loans and are denominated in Sterling.
The repayment profile is as follows:
2023 2022
Group GBPm GBPm
----------------------------- ----- -----
Within one year or on demand - -
Between one and two years - 84.3
After more than two years 92.2 -
----------------------------- ----- -----
92.2 84.3
----------------------------- ----- -----
The balances above are shown net of issue costs of GBP3.3m
(2022: GBP0.7m), which are being amortised over the term of the
bank loan. The carrying amount of borrowings is deemed to be a
reasonable approximation to fair value.
The Group has total facilities of GBP350.0m to 21 February 2027,
provided by a syndicate of eight banks: AIB, Barclays, Danske,
HSBC, JP Morgan, Lloyds, NatWest and Virgin Money. The facility
comprises the following elements:
-- a fixed term loan of GBP87.5m, repayable on 21 February 2027 via a single bullet repayment;
-- a four-year Revolving Credit Facility of GBP262.5m, available to 21 February 2027; and
-- we retain our GBP5.0m overdraft facility, renewable annually.
The two financial covenants associated with these facilities are
based on the ratios of bank-test net debt to bank-test EBITDA and
bank-test EBITDA to interest. The bank-test net debt to bank-test
EBITDA ratio must not exceed 3.25x. The bank-test EBITDA to
interest ratio must not be less than 4.5x. The facilities require
cross- guarantees from the most significant of CVS Group's trading
subsidiaries but are not secured on the assets of the Group.
Bank-test EBITDA is based on the last twelve months' adjusted
EBITDA performance annualised for the effect of acquisitions
deducting costs relating to business combinations and adding back
share option expense, prior to the impact of IFRS 16.
Bank covenants are tested quarterly and the Group has
considerable headroom in both financial covenants and in its
undrawn but committed facilities as at 30 June 2023.
Interest rate risk is also managed centrally and derivative
instruments are used to mitigate this risk. On 28 February 2020,
the Group entered into a four-year interest rate fixed swap
arrangement to hedge fluctuations in interest rates on GBP70.0m of
its term loan.
At the year end GBP70.0m of the term loan was hedged using an
interest rate swap. The remainder of the debt is not hedged.
Undrawn committed borrowing facilities
At 30 June 2023, the Group has a committed overdraft facility of
GBP5.0m (2022: GBP5.0m) and an RCF of GBP262.5m (2022: GBP85.0m).
The overdraft was undrawn at 30 June 2023 (2022: undrawn) and the
RCF was GBP8.0m drawn (2022: fully undrawn).
7. Share capital
Dividends
The Directors have proposed a final dividend of 7.5p (2022:
7.0p) per share, giving a total of GBP5.4m (2022: GBP5.0m). During
the year the 2022 final dividend totalling GBP5.0m was paid (2022:
GBP4.6m).
8. Cash flow generated from operations
Group Company
------------ ------------
2023 2022 2023 2022
GBPm GBPm GBPm GBPm
------------------------------------------------ ----- ----- ----- -----
Profit/(loss) for the year 41.9 25.7 (0.8) (0.6)
Tax expense 12.0 10.3 - -
Finance expense 8.4 6.8 - -
Amortisation of intangible assets 22.6 22.2 - -
Depreciation of property, plant and equipment 12.6 11.3 - -
Depreciation and impairment of right-of-use
assets 15.2 14.1 - -
Profit on sale of property, plant and equipment
and right-of-use assets (0.2) (0.3) - -
Increase in inventories (1.8) (6.6) - -
(Increase)/decrease in trade and other
receivables (4.6) (3.2) 4.2 2.9
Decrease in trade and other payables (0.8) (0.1) - -
Decrease in provisions (1.4) (1.8) - -
Share option expense 1.7 2.3 - -
Exceptional items 2.3 12.4 - -
------------------------------------------------ ----- ----- ----- -----
Total net cash flow generated from operations 107.9 93.1 3.4 2.3
------------------------------------------------ ----- ----- ----- -----
9. Related party transactions
Directors' and key management's compensation is disclosed in
note 8 of the FY23 Annual Report.
Company
During the year the Company had the following transactions with
CVS (UK) Limited:
2023 2022
GBPm GBPm
------------------------------------------------------------ ----- -----
Recharge of expenses incurred by CVS (UK) Limited on behalf
of the Company (0.8) (0.6)
Cash advanced to fund payment of dividend (5.0) (4.6)
------------------------------------------------------------ ----- -----
The following balances were owed by related companies:
2023 2022
------------------- -------------------
Receivable Payable Receivable Payable
GBPm GBPm GBPm GBPm
----------------- ---------- ------- ---------- -------
CVS (UK) Limited 75.2 - 79.4 -
----------------- ---------- ------- ---------- -------
Amounts owed by CVS (UK) Limited are unsecured and interest free
and have no fixed date of repayment.
Transactions with Directors and key management
On 24 November 2022, the Group completed the purchase of 100.0%
of the share capital of The Harrogate Vet Limited, a company
registered in England and Wales, for total consideration of
GBP2.5m, plus deferred consideration of GBP0.1m and contingent
consideration of GBP1.5m. This is a business comprising one animal
veterinary practice site in the UK. Prior to acquisition, the
company was partially owned by the spouse of one of the Executive
Directors of the Group, and as such the acquisition is considered a
related party transaction. The terms of the acquisition, including
consideration paid, were on an arm's length basis and consistent
with acquisitions of other unrelated entities.
Consideration of GBP1.6m remains payable to the related party,
of which GBP1.5m is contingent on fixed EBITDA targets within the
practice acquired. The related party remained in part-time
employment within the Group and received a salary in 2023 of
GBP8,400 which is on an arm's length basis.
The following dividends were paid to the Directors of the
Group:
2023 2022
GBP GBP
----------------- ------ ------
R Connell 11,830 10,693
R Gray 420 325
D Kemp 561 426
D Wilton 455 -
R Fairman 1381 1,158
B Jacklin 467 306
Spouse R Fairman 848 709
Spouse R Alfonso 243 130
Spouse B Jacklin 86 -
----------------- ------ ------
10. Events after the reporting period
Since the 30 June 2023, the Group has entered the Australian
veterinary services market and completed 5 acquisitions comprising
of 5 practice sites for initial cash consideration of GBP23.8m
(Australian $46.8m), detailed below. This is aligned with the
Group's strategic goals.
% Share
Name of business combination Capital acquired Date of acquisition Country of incorporation
===================================== ================= =================== ========================
Vetright Pty Ltd 75% 26 July 2023 Australia
----------------- ------------------- ------------------------
McDowall Veterinary Hospital Pty. Ltd 100% 26 July 2023 Australia
----------------- ------------------- ------------------------
Brunker Road Veterinary Centre Pty 17 August
Limited 100% 2023 Australia
----------------- ------------------- ------------------------
Trade and 23 August
North Road Veterinary Centre asset 2023 Australia
----------------- ------------------- ------------------------
23 August
Cattle Dog Health Pty Ltd 100% 2023 Australia
===================================== ================= =================== ========================
In addition to the above, the Group completed the following two
acquisitions of two practice sites in the UK.
On 15 September 2023, the Group completed the purchase of 100.0%
of the share capital of Bridge Veterinary Practice Limited, a
company registered in England and Wales, for initial cash
consideration of GBP3.5m. This is a business comprising one
companion animal veterinary practice site in the UK, aligned with
the Group's strategic goals.
On 18 September 2023, the Group completed the purchase of 100.0%
of the share capital of Masefield Veterinary Services Ltd, a
company registered in England and Wales, for initial cash
consideration of GBP3.1m. This is a business comprising one
companion animal veterinary practice site in the UK, aligned with
the Group's strategic goals.
Further information on these business combinations can be found
in note 5.
In addition the Group has exchanged contracts in respect of the
acquisition of an additional small animal first opinion veterinary
practice in the UK, with completion expected by the end of
September 2023. Consideration for this pending acquisition is
GBP2.5m.
On 7 September 2023, the CMA announced a Market Review of the
Veterinary sector for household pets in the UK. The review is
carried out under the CMA's general review function which allows it
to obtain, compile and keep under review information relating to
the CMA's functions. The Market Review is voluntary and we will
work closely with the CMA in support. The CMA have stated they will
provide a further update in early 2024.
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END
FR EADNFADKDEEA
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